Interview: U.S. high inflation, appreciating dollar double whammy for world, says Singaporean expert

SINGAPORE, July 28 (Xinhua) -- The U.S. Federal Reserve's decision to raise interest rate amid elevating inflation will impose a larger impact on foreign countries than on the U.S. economy, a Singaporean scholar told Xinhua here on Thursday.

The U.S. Fed's move would cause capital pullout and push up the cost of foreign debts of those countries, said Lawrence Loh, director of the Center for Governance and Sustainability at the National University of Singapore.

The U.S. Federal Reserve on Wednesday raised its benchmark interest rate by 75 basis points, the second in a row of that magnitude, as elevated inflation showed no clear sign of easing.

Loh told Xinhua in an interview that inside the U.S., the impact of interest rate increases is definitely unfavorable as it will raise the cost of doing business as the cost of financing will go up amid higher rates, while many economic activities would decline, leading to job losses and shrinking business opportunities. The value of assets for investors will also fall down, he said.

However, the impact on foreign countries, as compared with that on the U.S., will be even larger, as higher rates of the greenback will lead to currency depreciation in foreign countries, and thus, there will be capital outflows from these countries to the U.S. and increased cost of foreign debts, Loh said.

The U.S. inflation is actually reaching a 40-year high while the U.S. dollar is at its highest in the 20-year period, said Loh. "High inflation rate and high dollar is actually a double whammy for the world."

Loh observed that the root cause of the global economic woe is the mismanagement by the U.S.

The U.S. launched stimulus measures to boost its economy before and during the pandemic and a lot of injection into the economy led to high demand for goods, said Loh. However, due to the disruption worldwide for the supply chain, the supply chain could not cope with the high demand, and this led to inflation, he noted.

"I think this is actually a very serious problem, and not only for the U.S. but more importantly, for the rest of the world."

Another cause of U.S. high inflation is its protectionism position, which definitely has led to increase in the tariff and raised the cost of goods and services from overseas, Loh explained. The inflation, in turn, will also hit the world, he added.

While the U.S. is trying to solve the problem of its own overheated economy by raising the interest rates, it is actually creating a problem for itself, and the whole world is actually paying the price, carrying the burden for the economic mismanagement of the U.S., said Loh.